chapter 09 (management of innovation)

Marketing Management by Arun Kumar and N Meenakshi© Vikas Publishing House Pvt. Ltd. 2006

CHAPTER 9MANAGEMENT OF

INNOVATIONS


LEARNING OBJECTIVES

• Various approaches to defining an innovation

• Essential prerequisites of creating an innovative culture in the organization

• Explaining various strategies for managing innovation in an organization

• Role of marketers and the senior management in fostering innovation in an organization


• Managing the innovation process in an organization, and the new product development process

• Product replacement strategies of a company

• Understanding the commercialization of technology

• Appreciating various forms of innovations: Next generation products, Modular design, Disruptive innovations, and Open market innovations

• Criticality of experimentation in innovations

Learning Objectives (Contd.)


DEFINING INNOVATIONS

• Customers’ perspective Discontinuous innovations Continuous innovations

Dynamically continuous • Company’s perspective

Product replacements

Addition to existing lines New product lines New to the world products


CREATING AN INNOVATIVE CULTURE

• Create corporate culture that promotes and rewards innovation

• Encourage their employees to take risks

• Tolerant attitude towards failure

• Management should visibly support new product development


• Management should resist the temptation of automatic nay-say

• Traditional performance appraisal measures such as the fulfillment of an expected revenue target revised for new product development teams

• Defend NPD teams in front of detractors

Creating An Innovative Culture (Contd.)


ORGANIZATIONAL STRUCTURES FOR

INNOVATION MANAGEMENT

• Project teams

• Product and brand managers

• New product committee

• Importance of teamwork


ROLE OF MARKETERS

• Work with R&D to establish clear, mutually agreed project priorities

• Improve the provision of marketing information to R&D

• Encourage R&D personnel to be more customer savvy

• Important personality and value differences between R&D and marketing

• Marketers should get over their technology phobia


ROLE OF SENIOR MANAGEMENT

• Locate marketing and R&D near to each other to encourage communication and development of informal relationships

• Show personal interest in new product development

• Provide strategic direction • Top management conviction about product

development• Encourage teamwork between R&D and

marketing


MANAGING THE INNOVATION PROCESS

• New product strategy

Senior management should provide vision and priorities for new product development

Outline objectives, like market share, profitability, or technological leadership for new products

Concentrate resources on few projects


• Idea generation Look outside current markets

Modify product form

Question conventional price and performance relationships

Imagine unarticulated customer needs rather than simply following them

Examine competitors’ products at frequent intervals

Retailers as a source of ideas for NPD

Customers as a source of ideas for NPD

Utilize MR effectively

Managing The Innovation Process (Contd.)


• Idea screening

Evaluate commercial worth of ideas

Use criteria to evaluate attractiveness of market for the proposed market

Basis such as return on assets, sales growth etc.

Idea for NPD should be in alignment with the company’s objectives and competencies

Should have reasonable chances of success



• Concept testing

Each basic product idea can be expanded into several product concepts

Each product concept can be compared by testing with target customers

Product concept is a particular combination of features, benefits, and price

Allows views of customers to enter the NPD process at an early stage

Use research to gather customer opinions



• Business analysis

Estimates of sales, cost and profits

Identifies the product target market, its size, and projected product acceptance over a number of years

Study various prices and their implications on sales revenues

Conduct sensitivity analysis

Estimate revenues and profits to justify the expenses of development and marketing



• Product development

New product concept is developed into a physical product

Multi-disciplinary project teams established

Product testing focuses on the functional aspects of the product and consumer acceptance

R&D focuses on functional aspects of product and marketing keeps the project team aware of psychological factors



Products set up to fail at this stage:Developers become their own during this stage

Developers are wary of showing their incomplete designs to other people in the organization

Both customer needs and technologies are likely to change during the development process itself

A description of the product can never match the physical product in eliciting real reactions of customers

A company should be willing to do ‘anything’ to increase the probability of success of a new product



• Market testing

Simulated market test

Launch the new product in a limited way

Key success indicators such as penetration and repeat purchase can be ascertained

Launch of new product in one or few geographical areas chosen to be representative of

its intended market

Facing competition in retail outlets

Information provided by test marketing facilitates the go / no go national launch decision



• Commercialization and diffusion of innovation

Diffusion is how a new product spreads throughout a market over time

Buyer at different stages of buying readiness

In initial phase of launch target customers who are more likely to buy the new product than

others

Adoption slower if company targets complete market initially



Innovators: Most likely to buy the new product

Early adopters: Set of customers who buy the product next

Early and late majorities form the bulk of the customers

Laggards are tradition bound

Diffusion of innovation categories play crucial role in the choice of target markets

Key is to understand the characteristics of the innovator and early adopter categories and target them at launch



Adopter categories can provide basis of segmenting the target market

Diffusion curve linked to the product life cycle

Characteristics of the product being launched also affects diffusion rate

Choice of marketing strategy to establish a differential advantage to be made

Product’s communicability affects adoption of new product



PRODUCT REPLACEMENT STRATEGIES

• Facelift • Inconspicuous technological substitution • Remerchandising • Relaunch • Conspicuous technological substitution • Intangible repositioning • Tangible repositioning • Innovation


COMMERCIALIZATION OF TECHNOLOGY

• New technologies important to best competition • Develop capability to bring new technologies to

market faster than competitors • MR has a limited role in launching

technologically superior products• Major market innovations technologically

driven • Technical pursuits must be linked to market

requirements


NEXT-GENERATION PRODUCTS

• Priority for technology based companies as well as traditional businesses

• Technology-based companies should focus on meeting customer’s evolving needs

• Create list of products that companies should develop in near, intermediate and distant future

• Create separate units and teams with the involvement of chief executive


• Different resources required at different stages of the product development process

• New-generation products will be distinctly different from existing products

• Monitor on a continuous basis the progress of the development process in terms of investments being made and targets achieved

• Develop early prototypes of subsystems and the final product to assess workability

• Should not shy away from using relevant competencies of their suppliers and should make them a part of the development process

Next-generation Products (Contd.)


MODULAR DESIGNS • Modularity: Building a complex product from smaller

subsystems that can be designed independently and can function together as a whole

• Modular designs can increase the rate of innovation

• Innovations in modules must fit in the design of the complete product

• Products can be designed to allow modularity in use

• Companies can either act as an architect to create the design rules, or can compete as a designer of modules that conform to the architecture, interfaces, and test protocols of others


DISRUPTIVE INNOVATIONS

• Makes a stealthy entry into an industry and changes industry structure and dynamics

• Over time, innovations overshoot the need of the average customers in an industry: Potential for upstart companies to introduce disruptive innovation

• Capability of the disruptive innovation remains low during the introduction phase

• But rapid improvement in the capability of the disruptive innovations ensure widespread adoptions


OPEN-MARKET INNOVATIONS

• Importing new ideas is a good way to enhance the innovative capability of the company

• Exporting ideas is a good way to earn revenues and keep creative people motivated

• Exporting ideas gives companies a way to measure the innovation’s real value

• Exporting and importing ideas help companies clarify what they do best

• Real dangers in sharing innovations

• Suitable when the economies of innovation are low


EXPERIMENTATION IN INNOVATION

• Rapid experimentation can provide the rapid feedback necessary to shape those ideas by reinforcing, modifying, or complementing existing new knowledge

• Experimenting with many diverse ideas is crucial to innovation


• When projects fail late in the development cycle, the damages are enormous. Companies can reap enormous benefits if they were to avoid late-stage problems

• By combining new and established technologies, a company can get the desired performance faster and at lesser expense

chapter 09 (management of innovation)

Business

new product development

new products

rewards innovation

management conviction

failure management

disruptive innovations

marketing marketers

rd personnel